Banks ordered to double forex sales to CB

The Central Bank, in a bid to collect foreign exchange to finance the crucial imports as well as to rebuild foreign reserves, directed the banks to sell 50 percent of the remittances and residual export proceeds they collect every week to the Central Bank, as there has been a significant increase seen in the inflows via the formal banking system, since the rupee was floated on March 7. 

The move is unlikely to have any implication on the migrants sending their money via the formal banking channels or the exporters, as the instructions would apply only to the banks, which deal with the Central Bank on foreign exchange. 

The fresh instructions effectively double the amount of foreign currency, which is supposed to be sold and converted into rupees as the previous cap was set at 25 percent.

The fresh instructions apply from March 21 to July 29, 2022.

The Central Bank said the move was to “further improve the foreign reserves of the country and to ensure uninterrupted supply of essential imports (particularly, fuel, gas, coal and medicine)…”. 

In previous times, instructions, which came in relation to remittances via gazettes, spooked migrants and led them to suspend repatriation of their incomes via formal channels. 

Under the mandatory conversion requirements, the exporters are required to sell the remainder of their proceeds on or before the seventh day of the following month after meeting their regular expenses in foreign currency and commitments up to a month. 

In a recent update to this rule, the Central Bank allowed the payment to be made in foreign currency to the local suppliers too.